CEO PROJECT
Business 109
Group 13; Section 24
By: Francis Colina, Francis Moon, Lindsay Berdan, Albert Yum, Brian Lee,
Chambree Culbertson, and Craig Tsao
Strategic Audit
(Cisco)
Current Situation
Current Performance
Cisco is one the of the world’s largest technological corporations. It has also been the worldwide
leader in networking for the Internet. Although investor confidence has seen better times, the
previous year showed promising performance. Financial stability is secure and indicates
consistent growth. For fiscal 2010, net sales increased by 11% compared to the previous year.
Record net sales reached over $40 billion with annual product sales stated at $32.4 billion.
Cisco continues to compete for global market share in the communications and networking
industry but faces relentless competition from other companies such as Hewlett Packard. Cisco
Systems remains to be the largest/leading company in the networking and communication
industry.
Cisco’s market share for the industry has been listed as:
•
Security - 35%
•
Digital Video: IPTV - 69% (Cisco/SA)
•
Switching: Modular/Fixed - 75% (Cisco/SA)
•
Voice - 33%
•
Wireless: LAN - 56%
•
Storage: Area Networks - 33%
•
Routing: Edge/Core/Access - 61%
•
Networked Home - 36% (Linksys)
•
Web Conferencing - 50% (Cisco/WebEx)
Simple ROI = (gains - investment costs) / investment costs
(95940 - 122024) / 122024 = -21.376%
Strategic Posture
All of Cisco’s objectives, strategies, and policies are strong, because the company’s performance
in 2010 was better than most of its competitors and the company did not incur a net loss.
Mission Statement: “Cisco enables people to make powerful connections - whether in business,
education, philanthropy, or creativity. Cisco hardware, software, and service offerings are used
to create the Internet solutions that make networks possible-providing easy access to information
anywhere, at any time” (Cisco corporate website). This means that Cisco is in the technological
industry to create customer value by providing quality switches, routers, security products, and
other services to fulfill the global marketplace’s demand for quality technological goods and
services.
Objectives: “Cisco helps service providers build flexible, scalable, and secure networks that
deliver profitable services for sustainable success” (Cisco corporate website). This means that
corporate objectives are for the company to be profitable and have business operations run
smoothly. Functional objectives state that Cisco provide and builds flexible and secure networks
where organizations can purchase products and network with Cisco; knowing that their security
(information, databases, and reputation) is not in jeopardy. Cisco makes sure that networks are
secure due to heavily investing in R&D to constantly make sure that network security is always
“up-to-date.”
Strategies: "Cisco's strategy is based on catching market transitions-the market transitions that
affect our customers by:
·
Cisco IP NGN Architecture:
The intelligent Cisco IP Next-Generation Network (IP NGN) can transform your residential,
business, and mobile services.
·
Medianet for Multimedia:
A medianet is a network optimized to give subscribers access to multimedia services wherever
they are, on a variety of devices.
·
Mobile Internet Transformation:
Cisco helps operators around the world increase network efficiency, reduce time to market, and
offer next-generation personalized services.
·
Data Center and Cloud Computing:
Cisco's approach to virtualization unifies network and computing assets and strengthens security
while enhancing application performance.
·
Deliver the Connected Life:
Increase profitability and customer loyalty by delivering personalized services to consumers at
home, at work, and on the move” (Cisco corporate website). These are the mix of strategies
Cisco uses to create customer value. All of these strategies are consistent with the corporation’s
overall mission – to enable individuals to be connected with the world and positively benefit
both the company’s internal and external environments. Marketers and engineers (internal) can
assess whether these strategies are creating customer value and determine what tools need to be
implemented or changed to effectively cater to customer needs. Customers (external) will
become loyal to Cisco if they are satisfied with the corporation’s products.
Policies: All employees will be ethical in their work and will do their best to prevent hacker
access to critical information (Cisco corporate website). In order to provide stakeholder value,
employees have to act ethically. The most profitable companies are some of the most ethical
companies. For example, Johnson & Johnson have become more profitable ever since the
company handled the Tylenol crisis ethically. Cisco’s mission and objectives is to provide
customers with unique quality products and services. If employees do not do their best to protect
valuable information, both internal and external hackers could gain access to critical information
and create substitute products. This could drastically reduce Cisco’s profits if they have to
compete with companies that offer very similar products.
All of Cisco’s missions, objectives, and policies reflect what the company wants to achieve in
the global marketplace. For example, product information is imputed online to inform not only
domestic consumers about products, but international consumers as well. Cisco’s mission is to
provide both domestic and international corporations with computer and security products to
keep corporate databases and information secure.
Corporate Governance
Board of Directors
1. Carol Bartz –
Title: Chief Executive Officer, Yahoo! Inc.
Company: Yahoo! Inc.
2. M. Michelle Burns –
Title: Chairman and Chief Executive Officer
Company: Mercer LLC
3. Michael D. Capellas –
Title: Chief Executive Officer, Chairman of the Board
Company: Acadia Enterprises
4. Larry Carter –
Title: Senior Vice President, Office of the Chairman and CEO
Company: Cisco Systems, Inc.
5. John T. Chambers
Title: Chairman and Chief Executive Officer
Company: Cisco Systems, Inc.
6. Brian L. Halla
Title: Chairman and Chief Executive Officer
Company: National Semiconductor Corporation
7. John L. Hennessy Ph.d.
Title: President
School: Stanford University
8. Richard Kovacevich
Title: Chairman Emeritus
Company: Wells Fargo & Company
9. Roderick C. McGeary
Title: Chairman
Company: Tegile Systems, Inc.
10. Michael K. Powell
Title: Senior Advisor Providence, Chairman MK
Company: Providence Equity Partners, MK Powell Group
11. Arun Sarin, KBE
Title: Former Chief Executive Officer Vodafone, Senior Advisor Kohlberg
Company: Vodafone Group Plc, Kohlberg Kravis Roberts & Company
12. Steven M. West
Title: Founder/Partner
Company: Emerging Company Partners
13. Jerry Yang
Title: Co-Founder and Chief Yahoo
Company: Yahoo! Inc.
Under Cisco’s Corporate Governance policies, Executive Officers are required to own company
shares that amount to the equivalence of three times their own base salary. The Chief Executive
Officer is required to have five times the shares of his/her salary. The current CEO, John
Chambers, owns over 100,000 shares of common stock. Non-employee board members also
have to carry significant shares of common stock.
Cisco’s first initial public offering occurred in 1990 as their common stock hit the market. Cisco
carries only common stock. Voting rights are not distributed to all stockholders because those
individuals need to sit on the board. The board of directors’ policies carries requirements that
prevent general shareholders from becoming a voting member.
As a company that uses the network as a platform, Cisco diversifies its board with members of
different corporations. Cisco’s corporate governance policies on board compositions require that
the majority of the board be independent directors. By allowing different company perspectives
on Cisco’s board, there are many valuable contributions that Cisco obtains. For example, board
member John Hennessy sits on Google’s board of directors. As a company that creates their
products around the Web, Cisco gains valuable knowledge on where the Internet is going as a
network. All of Cisco’s board members have experience and knowledge that come from different
backgrounds such as consulting, banking, and network technology. Their contributions as a
diverse board aids Cisco in the company’s use of global networks. Jerry Yang, an Executive
from Yahoo, is an example of a board member that carries international experience.
Carol Bartz – BOD member since November 1996
M. Michele Burns – BOD member since November 2003
Michael D. Capellas – BOD member since January 2006
Larry Carter – BOD member since July 2000
John T. Chambers – BOD member since November 1993
Brian L. Halla – BOD member since January 2007
John L. Hennessey – BOD member since January 2002
Richard Kovacevich – BOD member since January 2005
Roderick C. McGeary – BOD member since July 2003
Michael K. Powell – BOD member since March 2007
Arun Sarin, KBE – BOD member since September 2009
Steven M. West – BOD member since April 1996
Jerry Yang – BOD member since July 2000
The board of directors consists of members that help evaluate and control the industry that Cisco
is in. By having the function of committees, Cisco’s organizational structure delegates
responsibilities to different board members. There are a total of five committees that are split
between board members and they are as follows:
Audit Committee:
The Audit Committee is otherwise known as the oversight committee. This committee focuses
on overseeing the company financials through the accounting and financial report. The reports
are used to present information to shareholders. In addition, the audit committee appoints and
oversees the company’s accountants.
Compensation and Management Development Committee:
The Compensation and Management Development committee focuses on reviewing the strategic
management process of the corporation. This committee analyzes company objectives and goals
to align properly with the Executives of the board, by practicing competition, corporate
governance, and shareholder interest. Additionally, the committee will distribute compensations
in the end of its fiscal year.
Nomination and Governance:
The Nomination and Governance Committee has oversight on revising company board policies
as well as recommending future board members for the company’s board of directors.
Acquisition Committee:
The Acquisition Committee is in charge of passing or declining any merger or acquisition
company that is approved by management. This committee also takes the lead in passing any
investment transactions.
Finance Committee:
The Finance Committee is in charge of over viewing the company’s global investment policy,
which considers all the equity and fixed income investments made by Cisco. In addition, they are
in charge of all subsidiaries and they review the company’s smaller investments amounts. This
committee is also in charge of approving any acquiring or leasing of property.
Top Management
Top management refers to the company Executives as well as the board of directors. They carry
out all relevant tactics and implementation for the strategic management process.
Cisco puts a lot of emphasis on global and international expansion as a company. Three of their
top eight Executives have relevant field knowledge in Globalization. As a board full of
independent directors, each board member carries different background knowledge and input for
Cisco. For example, Brian L. Halla, a board member and Executive Officer of the National
Semiconductor Corporation, brings in the knowledge of management technology, improving
Cisco’s analog integrated circuits, as well as their supply chain management. Michael D.
Capellas is another example of an Executive that carries relevant information for Cisco. Capellas
is an Executive in part of an acquisition made by Cisco for Acadia LLC. As the companies
merged, Cisco entered itself in the Virtual Computing Environment Coalition. This is a very
crucial field in improving Cisco’s research and development toward network technologies.
Overall, all these independent Executives are placed in Cisco’s top management team to ensure
effective planning and decision making for the company. They all carry different individual
perspectives and background knowledge in their respective field of expertise.
Many of Cisco’s top management Executives have been on board for over five years. Currently,
there are only two Executives that sit on the board with less than three years’ experience.
Because Cisco’s board policy requires that the majority of the board members be independent
directors, the Executives are mainly external hires. Cisco’s Executive Officers, however, are all
long-term Cisco employees that have been with the company for more than five years. The
organizational structure of Cisco is constructed in a manner that implements a division of labor,
constituting most of the company’s performance based on top management’s performance and
execution.
Under their Corporate Governance policies, Cisco is required to have the CEO and the Board
develop plans for senior executive officers. The members that sit on the Management and
Development Committee must execute tasks to review management succession. Additionally, in
order to ensure the company’s vision and stability, each company executive is required to present
financial statements that are in align with the corporation’s financial results. And to address
transparency issues, the executive management is responsible in communicating with key
constituents of the corporation.
Each executive is given a task that automatically involves them in the strategic management
process. By delegating responsibilities and requiring executives to create policy, it becomes
mandated in their job description as a committee or board member to carry out those duties. And
as a majority shareholder, it is under the best interest of each executive to follow the long-term
vision for strategic management.
Under their governance policies, it states that managements “primary responsibility” is to
communicate with media, employees, or shareholders that are involved with the company. By
effectively communicating with lower level managers, Cisco’s top executives are able to align
the entire corporation with the same vision and mission. All relevant information should be
distributed to all members of the corporation to ensure transparency. Cisco is also ethically
responsible as they create their strategic management decisions not to violate their Code of
Business Conduct. Cisco has a strong organizational structure that addresses all ethical concerns.
Top management is well suited to ensure stability within Cisco during changing environment.
However, the board is well-prepared to accept any future challenges that Cisco as a company
might encounter. Because Cisco’s market is constantly changing with the emergence of different
network technologies, the board’s external executives play a crucial factor in tackling these
future challenges.
External Environment: Opportunities and Threats (SWOT)
Natural Physical and Societal Environment
Environmental awareness has become one of the most common trends that organizations have to
account for. People are becoming increasingly concerned with environmental responsibility. At
the same time, consumers are always interested in new technologies and their usefulness. Cisco
has taken a position in which technology is utilized to help improve both business processes and
environmental efficiency.
Networking has made the world a relatively small place and more people are connected than
ever. However, a key note should be that all of the world’s resources are finite. In the grand
scheme of things, nothing lasts forever and competing in a highly innovative consumer market
will have an end. Key components for products are limited and highly sought after. It is also
difficult to obtain environmentally sustainable places to work with. The most current threat for
the industries in which Cisco competes in would be the capability in satisfying consumer
demands. Cisco must have desirable and innovative products that fulfill all environmental
standards at a cost people are willing to pay for. Most people all around the world already have
access to things that they need and computer/Internet literacy is only increasing. The Internet
boom has carried Cisco to mammoth heights. Cisco now needs a newer focus that no one has yet
innovated or developed. Unless Cisco takes full advantage of the next societal development, the
company may not have another opportunity to impress investors.
Economic (Threat)
Conservative spending in today’s economy should be no surprise. Recent downturns have
encouraged people to save more and spend less. There are also many global players that have
profound influences on the market, many of which have been undergoing changes and
development. Other significant entities are struggling and experiencing financial troubles. The
United States is not exactly viewed as the best place for business opportunities either.
Rapidly growing economies have been changing to adapt for the future as they should be. All
organizations must address international issues and take note of what goes on outside of internal
operations. Third world countries with less restrictions and cheaper operational costs are highly
appealing for a competitive strategy as pricing continues to be an increasingly crucial factor.
Technological (Opportunity)
International market demands evolve quickly as Internet technologies develop at a seemingly
exponential pace. This threat is constant as Cisco and its competitors maintain a visionary goal
all the while reacting to unforeseen developments. It goes without saying that dependence and
uses for new technology are not going to disappear as advancements are being made on a daily
basis. Developers are innovating from personal home projects to commercial scale revolutions.
Cisco needs to make sure that it is a part of the next revolutionary innovation, if not the creator.
Political-legal (Threat)
One of Cisco’s greatest concerns is keeping up with political-legal threats. No matter what
service Cisco is providing, there are always vulnerable aspects in system security whether or not
it is public or private. Vulnerability activity has declined after collective programs initiated from
the previous year by security advisories from Cisco, HP, Symantec, Microsoft, and Chrome. An
advanced security infrastructure is nonnegotiable when it comes to protecting customers and
organizations. Risk management is needed to keep all organizations (and users) involved with
networking and communication so that everyone can be informed and protected from threats.
Internet technology can be hacked which can exploit valuable and private information. As a
product and service provider, Cisco has to take responsible action. Ensuring all Cisco products
and services exceed political/legal expectations is difficult and costly.
Sociocultural (Opportunity)
Widespread use of digital devices has become so common it is now permanently infused into
culture. Younger generations and groups of people have acquired specific tastes and preferences
for their networking and digital devices. Needs are being redefined as digital expertise and
knowledge become more advanced and pursued. In extreme cases, brand loyalty is almost cultlike.
Not everyone wants premium products/services that Cisco is offering. During these times, the
demand is in low costs, reliability, and efficiency. Many of the products Cisco is pushing are not
necessarily needed considering the vast selection of diversified products available from other
competitors.
Task Environment
Cisco is a globalized company that serves to connect businesses all around the world. Many
consumer needs and product developments are taken into consideration but, business
management communication is a generally standardized market. Organizations throughout the
world need to collaborate with one another. Cisco tries to go above and beyond this
communication void by making everything as easy and convenient as possible. The need to
constantly push the bar higher is very demanding in the face of competition.
(O) The threat of new entrants is very low. A significant threat would have to have already been
in the industry for some time to acquire the necessary capital and resources to compete against an
established company like Cisco. The bigger issue is having the technological know-how and
business networks to achieve any significant differentiation in an already saturated market. New
competition would need to be capable of going global very quickly if it hopes to stand a chance
on its own. Cisco is an established and well-known company that businesses around the world
can trust.
(T) Bargaining power of buyers’ threat is medium. The longer Cisco stays in an aging market,
the less it will make per capita. The Internet boom launched Cisco into a lucrative industry but
the strongest competitors are not going away anytime soon. Resources are limited and/or
regulated but we live in a time of mass production where consumerism is on the rise and Internet
use is widespread. Part of the companies supply strategy is working with many small businesses
or acquiring others.
(T) Substitute products or services pose a medium threat as well. Cisco does have a diverse line
of products/services that provide needs ranging from routers to security and memory storage.
The vast abundance of other brands that can also do the same or similar functions is nothing new.
The essential question is a matter of quality, price, and marketing that determines how well it is
sold. Cisco may be an aging corporation but it is also one of the most well-known brands that are
also a market share leader. Considering that the industry is heavily dependent on technological
innovation, all companies must be competitively vigilant on staying up-to-date with consumer
demands and developments.
(T) The bargaining power of suppliers may be more of a threat than an opportunity for Cisco.
The company’s supply function is handled by Cisco Global Supplier Diversity Business
Development which fulfills Cisco’s supply management system. Its business function is to focus
on enhancing the competitive advantage of facilitating all of Cisco’s business opportunities by
leveraging different suppliers. This is an advantage in the sense that if something goes wrong or
if retrenchment is needed, Cisco does not suffer a big loss because it is not the owner. A degree
of flexibility is also available to diversify various suppliers. The fact that Cisco’s products and
services are not entirely unique is a major threat. There are rival companies and alternatives that
customers can go to. Cisco is not in a position capable of totally dominating the industry.
(T) Rivalry among competing firms is high. Research and development is a crucial investment
for this industry as competitors aggressively market a broad selection of products. The threat of
competitors has always been high for Cisco because of the constant drive for developing the next
innovation that makes customer solutions a little easier or more interesting. Between HP and
Cisco, it is very difficult for either company to obtain the complete upper hand. Either company
can be offset by a revolutionary change in the way we network and communicate if they are
unable to take part. Rivalry keeps competition on edge and forces everyone to keep improving.
(O) The power of other stakeholders helps keep Cisco on track in terms of how its products and
services need to be seen as. After all, the mission involves improving the world. The direction of
the company depends on the opinions of others; Cisco needs to be wary of how it is perceived. In
terms of how Cisco has changed the way we work, live, play and learns, change has been radical
as a result of the Internet. Obviously Cisco has to comply with international trade regulations and
standards as do all competitors. But the networking and communication industry has provided a
means of connecting without having to travel. Some of Cisco’s most important clients are
government organizations, multi-national corporations, and global organizations. They are more
of an opportunity than a threat because it is in Cisco’s interest to work with them. The
networking and communications industry is crucial for managing the world.
Summary of External Factors
Today is a highly technological age and people are becoming increasingly dependent on newer
innovations quicker than ever. Such widespread use of technology has never happened before.
Cultures around the world are being influenced under the need for rapid advancements. Cisco
faces many current threats that challenge its global position because of a very competitive
industry. The company’s primary focus should always be looking ahead; to be the first in the
market. Currently, much of Cisco’s products and services are aging and beginning to lose
profitability as competitors seek to lower prices to capture market share. Sustainability is also the
lingering factor that has everyone tense. Cisco provides a solution by means of making the world
a smaller place and easier to work with but appears to be losing momentum in regards to
innovation.
Internal Environment: Strengths and Weaknesses (SWOT)
Corporate Structure
In today’s global economy, Cisco has to have a corporate structure that will allow the company
to have a competitive advantage in the technological industry. Cisco’s executives designed a
corporate structure so that the corporation would be able to network with other companies more
effectively, be closer to customers, adapt easily to change, and have a “teamwork-focused”
environment. Aside from Cisco’s business units and partnerships, the company is structured
where the board of directors oversees that marketing, customer service, operations, engineering,
and R&D are operating smoothly. This ensures that the company is reaching out to consumers
effectively though its marketing and customer service operations and that engineers and R&D
are creating products that the global marketplace demands. See figure 1.1 for a visual of Cisco’s
corporate structure. This corporate structure is consistent with Cisco’s objectives, strategies,
policies, and programs. Centralized marketing and customer service allow the company to fulfill
its objectives, strategies, and programs by helping clients use their newly purchased products to
help them operate their business more effectively through online product demonstrations and
customer service hotlines (Cisco corporate website). Policies include that customers are given
accurate product information to ensure customer value. Engineering makes quality products and
posts product information online to ensure that customer demands are fulfilled, which is part of
Cisco’s mission. According to Hunger and Wheelen, Cisco’s business model consists of both the
customer solutions model and the time model. Cisco uses the customer solutions model in which
the company not only sells products, but also sells “its expertise to improve its customers’’
operations” (pg. 142). “[Cisco’s] R&D and speed are the keys to success in the time model.
Being the first to market with a new innovation allows [Cisco] to earn high margins”(pg. 143).
Figure 1.1
Cisco is also decentralized to many business units: internet systems unit, advanced technology
group, edge routing unit, midrange routing unit, and core routing unit. Each unit has a centralized
structure by which top management of each unit has the authority to make final decisions. The
board of directors oversee that all business units are being profitable and are running smoothly. If
a particular business unit is not being profitable, the board of directors will perform six sigma to
get rid of unproductive operations with that unit or get rid of the whole unit. See figure 1.2 for a
visual of the six sigma process (Six Sigma). The reason why the corporation is broken up into
different business units is because employees can focus their attention on creating one product or
only focus on customer service. This way, employees will not be distracted by having to work on
multiple projects. Cisco is organized on the basis of geography. To increase market share, the
corporation constantly tries to sustain its current position in developed countries, such as the
Americas, Japan, and Europe. The company also tries to gain more market share by conducting
business in developing countries as well, such as the Middle East and less developed parts of
Asia. To successfully compete on a global level, Cisco does three things: conducts market
research, partners with successful firms, and acquisitions. Cisco’s marketers will test a potential
market to see what that particular market demands. Next, Cisco will form a partnership with a
company that is already successful in acquiring customers in that particular marketplace. A third
step that Cisco might do is buy out the competition in that marketplace. These three steps insure
that Cisco will be a strong competitor in the marketplaces it operates in.
Figure 1.2
Every employee seems to clearly understand Cisco’s corporate structure due to working in
Cisco’s business units. Employees are able to work more efficiently from having an
understanding of the company’s corporate structure, because workers are able to focus on the
creation and marketing of certain products. For example, an engineer at Cisco’s midrange
routing systems unit only has to focus on creating midrange routers and not focus on other
products. Cisco’s corporate structure is similar compared to its competitors. For example, Apple
Inc. is decentralized to many units, but each unit’s top management has the authority to make
final decisions. Unlike some competitors, Cisco relies heavily on its networking partners. When
Cisco wants to enter a new market, the company will network or acquire an existing firm who
has been successful in providing electronics and services to that market.
Corporate Cutlure
Corporate culture is the sum of all customs, meanings, traditions, and values which make an
organization unique. Corporate culture is also known as the “character of a company” that exists
as a result of a company’s mission. Corporate culture is relevant in today’s global economy,
because it is what makes an organization different from its competitors. Due to consumers being
able to shop worldwide, companies have to demonstrate how they differ from their competitors
to attract customers. Due to Cisco’s well-defined culture of shared beliefs, expectations, and
values, Cisco has become a strong competitor in the technological industry. “Twenty years ago,
Cisco Systems did not exist. Today, the company has more than $20 billion in revenues with
nearly 36,000 employees around the world. Chairman of the Board John Morgridge believes his
company’s culture has played a major role in its success” (Dalal).
The elements that make up Archie Carroll’s pyramid of corporate social responsibility are what
make up Cisco’s shared beliefs, expectations, and values. The elements of corporate social
responsibility are economic, legal, ethics, and philanthropy. See figure 1.3 for a visual of Archie
Carroll’s pyramid of corporate social responsibility (Carroll). The economic element states that
companies have to be profitable in order to stay in business. Cisco’s top management’s shared
beliefs and expectations are that the company generates enough revenues to exceed costs and that
net income continues to grow each year. Another top management shared belief and expectation
is that Cisco follows federal and state regulations to avoid lawsuits and damages to the
company’s reputation. Both the economic and legal requirements that Cisco must pursue is also
the shared beliefs and expectations of stakeholders. Stakeholders benefit if Cisco is profitable
and a good legal citizen. Ethics and philanthropy are what make up Cisco’s values. Values
include that the accounting department follows general accepted accounting principles when
creating financial reports and that assets are not overstated and costs understated. The company
donates money to charities in order to fulfill its values of being a good corporate citizen.
All countries have environmental regulations that companies need to abide by. If companies do
not follow these regulations, they will either be charged with legal fees, lawsuits, or lose their
ability to conduct business within a certain country. Cisco makes sure that all manufacturers are
not emitting too many chemicals that are environmentally hazardous to avoid lawsuits and legal
fees. Also, Cisco invests in research and development to create products that will not be too
harmful to the environment. Many of these products last for several years. By creating quality
products that have a long life-span; Cisco can prevent many of its products from being wasted
within two to three years, which helps reduce a nation’s overall wastes. This also helps Cisco
capitalize on the “go green” trend, which helps the company increase market share and customer
loyalty.
Cisco’s culture of offering good quality products and services requires employee diversity. By
having employee diversity, the company will be able to generate new ideas to make products
better and improve customer service. Some people can connect better with certain groups than
other people. In order to effectively cater to all groups of people, Cisco hires people of different
nationalities, age, and religion. One of the elements of Cisco’s culture is following federal and
state regulations. Having a diverse workforce fulfills Cisco’s cultural objective of being a good
legal citizen, because the company is not discriminating against race, age, or religion. Since
Cisco has a diverse workforce, the company would have to take into consideration the values of
the cultures of each nation in which the organization operates in. By taking each nation’s culture
into consideration, the company can avoid lawsuits by national regulations and can manage
employees more effectively. Taking a nation’s culture into consideration helps Cisco market its
products effectively.
The company’s objectives, strategies, policies, and programs are in harmony with the
organization’s culture where customer value is the main focus. Cisco’s objectives and strategies
are to innovate quality products and provide superior customer service efficiently. Chairman of
the Board, John Morgridge, gives an example of how Cisco fulfills its objectives and strategies
effectively and efficiently; “On a trip to New York once, I walked out of the airport and saw a
limo driver holding a sign with my name. When I walked up to him, he said, ‘Here’s your
subway ticket’ and pointed me in the right direction. That’s the way it should be. To be truly
frugal, management should use the same means of transportation as the rest of the employees
because everyone’s actions define the corporate culture” (Dalal). In Cisco’s case, efficiency
means to pursue objectives and strategies by being customer focused and effectively allocating
resources. Cisco’s policies and programs also help promote a culture of customer value. For
example, one of the company’s policies is to only have corporate partners whose focus is also
customer value. Cisco has a few customer assistance programs where customers can learn about
products and how to get the most out of them.
Cisco’s culture of customer value also centers on important issues, such as productivity, quality
of performance, adaptability to changing conditions, and internationalization. As Morgridge
stated, employees have to be as productive as the limo driver; fast at doing their job, yet provide
quality results. Cisco has to adapt to changing conditions due to the industry it’s in. If Cisco
stops offering new products every one to two years, consumers will buy its competitors’
products. Cisco’s culture encourages the company to compete globally. The corporation can
provide more customer value by providing customer services worldwide.
Figure 1.3
Corporate Resources
Marketing:
Aside from corporate structure, Cisco’s strategy is using social media channels to network
between companies to strengthen its supplier and customer relationships. According to Neil Hair,
professor of marketing at the E. Philip Saunders College of Business, states “that the business
world is in the early stages of adopting these consumer-based social networking tools and
identifying key challenges, such as the need for increased governance and IT involvement, which
may impact the integration and adoption of these new platforms and technologies.” One of
Cisco’s marketing programs is its Networking Academy. Through this program, Cisco helps
communities around the world by providing community members education in computers and
networking. Cisco’s Networking Academy can be considered a marketing program, because
community members will have a good understanding of how Cisco’s products work and will be
able to tell others about them. Also, community members who are in top positions of large firms
may decide that partnering with Cisco would provide great opportunities for their businesses.
Not only can Cisco market its products through its Networking Academy, but also market to
potential partners as well. One of Cisco’s marketing policies is making sure marketing
information is secure. This means that all employees in the marketing department do their best to
defend critical marketing information against hackers. Marketing objectives seek to achieve
product awareness for both corporate and individual consumers. According to Cisco, its strategy
“is based on catching market transitions – the market transitions that affect our customers”
(Cisco corporate website).
All of Cisco’s marketing strategies, objectives, policies, and programs are consistent with
corporate strategies, objectives, policies, and programs. Marketing strategies are consistent with
Cisco’s corporate strategy, because Cisco is using a marketing strategy that many large
corporations are adopting (using social media channels to network with organizations) to gain
access to new markets and to reach out to potential customers and partners. Marketing policies
are the same as corporate policies, protect valuable information from hackers. This benefits both
Cisco’s internal and external environments. These policies influence marketing activities
positively, because critical marketing information will be safer from hackers if employees do
their best to protect this information. These policies prevent other companies copying Cisco’s
marketing strategies and programs. By achieving product awareness for both corporate and
individual consumers, Cisco will be able to gain more market share and customer loyalty. All of
Cisco’s marketing objectives, strategies, policies, and programs are implied by performance.
Because of these, Cisco remains a top competitor in the technological industry. Without good
performance, Cisco could not have reported $10.4 billion in net sales, $1.5 billion in net income,
and $0.27 earnings per share in its 2011 second quarter annual report (Cisco corporate website).
Despite strategies, objectives, policies, and programs, Cisco’s sales are dependent on many large
corporations, because large corporations need partners to help keep their databases and
technological operations secure. Cisco’s success is due to having around eighty-five percent of
Fortune 500 companies use its products. Most of Cisco’s sales come from developed countries,
because most Fortune 500 companies are headquartered in developed countries. Cisco’s current
products are router, switches, voice communications, and security products. Routers and
switches are currently at the maturity stage of the product life cycle, while voice communications
and security products are at the introduction and growth stages. Cisco’s products, prices, places,
and promotions are effectively generating revenues in both domestic and international markets.
Both domestic and international companies demand Cisco’s products to protect their databases
and business operations at a reasonable price. Cisco uses the skimming pricing approach to
generate revenues from corporations who are serious about protecting their information and
operations. Cisco uses the internet to sell products, because customers can view and gain
information about products without having to travel to a store. Promotions persuade potential
customers to buy Cisco’s products by offering free classes on how to network and protect
computers effectively from purchased products. Over the years, Cisco has been gaining market
share in the technological industry from constantly trying to find ways to create customer value.
The trends that emerge from this analysis suggest that Cisco generates most of its revenues from
large corporations. Cisco should focus its future strategic decisions on creating customer value
through programs, such as networking and IT classes for executives and other top managers to
more effectively market to large corporations. By implementing marketing tools, such as
websites and IT classes, Cisco has gained a competitive advantage over many of its competitors.
Many competitors do not offer classes where companies can learn how to secure databases and
information by using their products.
Aside from overall sales, Cisco’s marketing performance is strong due to the company being one
of the top competitors in the technological industry. The weakness in Cisco’s marketing
performance is selling certain products to individuals. Other competitors, such as Apple and
Microsoft have an advantage over Cisco in selling products to individuals due to these
companies’ marketing tools and campaigns being more geared towards individuals. Many
individual consumers have a hard time using Cisco’s products due to Cisco’s educational
programs and websites being too technical for the average person. Cisco’s strength compared to
other competitors in terms of marketing performance is selling to large corporations. About
eighty-five percent of Fortune 500 companies use Cisco’s products (Cisco’s corporate website).
These companies trust Cisco’s products to help business operations and protect their databases
from hackers is because of Cisco’s educational programs to help customers synergize their
products and due to Cisco having a reputation of investing large amounts of capital and resources
in R&D to develop superior quality products.
Cisco’s marketing managers use accepted marketing concepts and techniques to evaluate and
improve product performance. Marketing managers use the product life cycle to evaluate
customer product expectations. In the development and introduction stages, the marketing
department will conduct market research to evaluate the marketplace’s view of the new product.
For the introduction and growth stages, Cisco uses the skimming approach to capture revenues
from serious technological consumers. In the maturity and decline stages, Cisco will lower prices
of their products in these stages to capture revenues from les serious technological consumers.
By using the product life cycle to evaluate product sale performances, Cisco is able to understand
consumer behavior, which helps the company cater and analysis key characteristics of both
serious and non-serious technological consumers. See figure 1.4 for a visual of the product life
cycle (Strategies and Tactics). There are two types of customer that Cisco sells to: corporate and
individuals. Since corporations make up a mass market, Cisco targets certain companies that
focus on their databases being “up-to-date.” This is the reason why Cisco focuses most of its
attention on selling to Fortune 500 companies, because these companies are constantly updating
their databases to prevent internal and external hacker access.
Figure 1.4
Since different countries have different environmental, employee, and legal regulations, Cisco
has to adjust to the conditions in each country the company operates in to avoid lawsuits and lose
the ability to conduct business in a certain country. Before entering a new country, the market
manager will assess the strengths, weaknesses, opportunities, and threats. Cisco’s Vendor
Management Office (VMO) will seek out potential partners who can help the corporation create
customer value by adjusting to the country’s culture and regulations.
The company in general considers environmental sustainability when making decisions (Cisco’s
corporate website). According to Cisco, its “Environmental Management System (EMS)
provides a continuous cycle of planning, implementing, reviewing, and improving the processes
and actions that are performed to meet business and environmental goals. The EMS influences
all aspects of Cisco operations, products, and services, including compliance with environmental
requirements and regulations, while and driving ongoing improvements to Cisco’s environmental
performance. The EMS process enables Cisco to conform to ISO 14001, an internationally
accepted standard for environmental management systems. ISO 14001 drives to Cisco's
minimize its negative impact on the environment and maximize the positive impact.” This means
that the entire corporation’s marketing tools and programs follow all environmental regulations
in each country Cisco operates in and that these tools and programs are not too hazardous to the
environment.
The role of the marketing manager includes:
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Solution launch program management: develop and implement marketing solution plans
for multiple business units.
Develop marketing tools to demonstrate how Cisco’s products and services add customer
value.
Update and maintain Cisco’s internal marketing websites.
Help develop effective distribution channels.
Develop and execute other marketing plans, tools, and campaigns.
Work with Cisco’s partners to develop campaigns to increase sales.
Evaluate target markets.
Develop marketing relationships with certain stakeholders.
Establish marketing budget.
Analysis market assessments to identify growth opportunities and weaknesses (US
Central Marketing Manager).
Finance:
After a bumpy last 2 years, Cisco has once again, as of 2010, reported a boost in sales from the
year prior, thanks to the economy finally stabilizing. This boost in revenue will allow for further
expansion of the company, where CEO John Chamber expects to bolster the company roster by
adding up to 3,000 new jobs from within the corporation. Gone are the relatively tight budget,
which will allow for further research into research of information technology. Staying true to the
mission statement, Cisco is indeed creating an unparalleled opportunity to their prospective new
employees.
With Cisco venturing into even more markets this year, CFO Frank Calderoni expects the
upward trend to continue, with an increase of sales from the year prior by a staggering 23-26%,
which equates to roughly $10 billion in revenue. Industry analysts however are not as generous
in their prediction, stating that Cisco would enjoy a $9.5 billion increase in revenue this year.
With the recent trend of investing in cloud computing, it would have appeared that Cisco has
fallen a bit behind in terms of other high tech behemoths, as Cisco mainly dwells into internet
switches and routers. That is not to say there is still a lack of demand for Cisco products,
however they are lagging behind. Industry insider Scott Kessler suggests that people's perception
of Cisco as a networking firm far overshadows their other endeavors such as data storage,
consumer electronics, as well as video/web conferencing. Cisco will need to look closely at their
current strategy, perhaps using their recent sales boom to readjust, perhaps even reposition
themselves in order to break this conception that they are more than just a one product
technology firm. It is yet to be seen how Cisco will react, but yearly shareholder reports keep
investors up to speed on what Cisco intends to do.
Cisco has also been making great strides with their hyper aggressive acquisition strategies, in
which Cisco acquires a new smaller firm nearly once per month. The most recent, Intent
Technologies, specializes development of digital media processing platforms. Not only are their
financial gains to be made in these acquisitions, but also the divulging of information and
expertise from the acquired company will no doubt help Cisco both financially, and
technologically.
As of 2011, the current ratio for Cisco is sitting at 2.81., which is a steady increase from the year
prior at 2.61. A growth in the current ratio shows that Cisco has increased the value of its assets
when compared to its liabilities. The growth in this ratio coincides with Cisco reporting
increased sales for the 2010 fiscal year. This is generally a good sign as it shows confidence to
the investors of Cisco's ability to meet its financial obligations to its debtors. For comparison, the
industry median for the Current ratio is roughly 2.07. When compared to chief rivals HP's 1.10
ratio, and Alactel-Lucent's 1.35 ratio, it would appear that Cisco has the edge. Along with the
current ratio, Cisco's net income also enjoyed growth from 2009 to 2010. Net Income in 2010
measures in at $7,767 million when compared to 2009's $6,134 million.
Being a global corporation, Cisco does business in many different markets, but a bulk of its sales
(54%) is done within the United States. The second largest market for Cisco is the European
market which amounts to roughly 21% of total sales. Taking into account conversation rates,
foreign tax rates and practices, this can adversely affect the value of Cisco's constant reported
dollars.
The growth in the current ratio shows poorer past performance due to a slowing economy.
However, things have since picked up and as such Cisco has increased its sales, and to show,
reports a higher net income than prior years, as well as a higher current ratio. Current success
however may not exactly be indicative of future success, but it is certainly a relief to investors to
know that their investment is that of a sound choice. It will be interesting to see, however, how
the situation in Japan will affect Cisco quarterly reports. This is just one of the factors that are
out of Cisco's control that can adversely affect quarterly earnings.
Based on current performance as well as recent acquisitions, it would make sense that Cisco
would take a more aggressive approach into newer markets. One of the larger prior acquisitions
includes that of Scientific Atlanta, which is one of the nation's largest set top box makers. With
the recent upturn in the economy and a strong showing at the tradeshow CES 2011, it makes
perfect sense for Cisco to proceed into their strategy of entering new markets. However, it seems
that even in prior years, Cisco has always stuck to their aggressive acquisitions strategies, so
regardless of their financial performance, this seems to work well in accordance to Cisco's
business strategy.
While Cisco has reported positive growth, their recent success does not seem to provide them
with a competitive edge. Over the past 2 years, Cisco's hold on internet switches has been on the
decline to chief rivals like HP, with their market share down to 67% as of 2009. Being a high
tech firm, success is largely based on technological breakthroughs, and whoever can provide
these solutions first as well as pricing those solutions competitively. With the next generation of
internet switches in the works, it should only be a matter of time before Cisco once again retains
its lost market shares.
With total revenues at roughly $36,117 million, Cisco has earned its rightful place on the fortune
500 list at number 58. HP, on the other hand, is doing significantly better than Cisco is at this
point in time with total revenues of $114,552 million, earning the number 10 spot. This disparity
however is caused by the fact that HP has a much boarder scope of product offerings. While
Cisco dwells mainly in internet switches, networking solutions and the like, HP has laptop,
televisions, calculators, and so forth.
Like its acquisition strategies, Cisco employed some aggressive accounting practices. Cisco has
been accused of "pooling of interest" accounting, which severely diminished any negative impact
some recent acquisitions had on their books. One such incident occurred in 1999 when Cisco
acquired the corporation GeoTel communications. Cisco purchased $2 billion worth in stock but
only recorded in their books 49 million in, which was the amount of shareholder's equity listed
for GeoTel Communications. Reports say that at the end of July 2000, Cisco has withheld nearly
$18.2 billion in costs using this method of accounting. Cisco also takes advantage of its
shareholders by reporting unaudited pro forma earnings in a means a measuring its profitability.
In fiscal 2001, Cisco reports pro forma earnings of nearly 1.4 billion, which was roughly 600
million over the total net income.
Finance managers help accommodate the following:
· create value from the firm's capital budgeting
· Assesses what style of growth will best fit the corporation with regards to a stakeholder view of
management
· balance the competing needs of both employees and investors
· understand all the aspects of the business as to better advise the CEO
Research and Development (R&D):
Being a high tech firm, Cisco thrives on the strides that they make through their research and
development teams. Spending 5.3 billion on research and development every fiscal year, the
goals of teams are to steadily improve and break grounds on their current products. This includes
developing next generation internet switch technologies in order to outperform their competitors
like Motorola, and HP. Other research and development items include improving upon
TelePresence technology, integrating that video conferencing technology into other products
such as WebEx. Cisco is competent in technology transfer, because many products are
transferred between departments and business units. By doing this, Cisco uses cross-functional
work teams to complete products. For example, the marketing department may tell engineers to
make the product look a certain way to attract consumer attention. This not only helps complete
the product, but also helps the product sell more effectively.
Cisco makes an effort to show that they are indeed spending on R&D. In their corporate
overview, Cisco compares their revenue with other high tech firms like Microsoft, and shows
that they spend roughly 13% of their earned revenues, in this case upwards of $5.3+ billion back
into R&D. Delivering on their corporation vision; Cisco is shaping the future of the internet
through their research and development. Following up with their aggressive acquisition strategy,
Cisco R&D team is hard at work to incorporate the technology of their acquisition into their own
products to form a marriage of technology that can open up new barriers. The best example of
this is the umi telepresence. By incorporating web conferencing solutions into set top cable
boxes, Cisco has unlocked an entirely new way for their consumers to connect with their family
and friends.
Technology plays a dynamic role in Cisco's overall performance. By investing so many
resources into their R&D team, Cisco is ensuring that they will have the edge over their
competitors when it comes to delivering on innovation. Currently in the pipeline is development
of the next generation of internet switches. Offering higher speeds, greater security,
expandability, as well as options to both consumers and service providers, Cisco is setting the
foundation to further their stronghold in the industry as the leader in networking.
Cisco continues to innovate on all fronts even to their existing product lines. In line with its
mission statement to shape the future of the internet... for their ecosystem partners, Cisco has
developed improvements to its IOS operating system that is used in the Catalyst switches. The
technology, dubbed EnergyWise, allows Cisco to monitor and regulate energy consumption for
any device that is connected to the specific network. Cisco estimates that by implementing this
regulatory program that the energy savings would amount to nearly enough energy that can
power upwards of 72,500 homes or about 100 tons of coal. Clever use of engineering that
coincides greatly the green movement, Cisco is keeping its promise to deliver on ground
breaking technologies that can even help keep the world cleaner.
In the past year, Cisco has devoted roughly $5.3 billion in research and development. In 2010,
this resulted in a net income of $7,767 million. This is roughly an earnings of $1.46 for every $1
dollar spent in R&D. Compared to 2009 R&D spending Cisco spent $4,994 million on R&D
which resulted in a net income of $6,134 million, which is a roughly $1.23 for every $1 dollar
spent in R&D. There is definitely a positive correlation in regards to R&D spending and net
income. Cisco states that it spends roughly 13% of its revenues and invests it back into R&D. If
this upward trend continues, revenues will continue to increase with each following year, which
means that even more will be spent back into R&D. For comparison, HP only spent $2,96
million in 2010 in R&D costs, yet reported a net income of 8,671 million, for a roughly $2.92
gained for every $1 spent in R&D. However, HP encompasses a much broader range of products
than Cisco, so this figure is a little bit skewed.
Technology follows a sort of pattern which is known as Moore's Law. Moore's law states that the
power of technology will increase exponentially, while the price to create these new technologies
will inversely decrease. Such is the cast with virtually all Cisco products. Eventually, the R&D
department will find ways to improve upon their existing product lines, which will run more
efficiently than their predecessors, have more potential power, and cost less to produce. Such is
the same for all high tech firms, but it is highly reliant on a competent R&D department to
discover such breakthroughs and incorporating these new technologies to their current products.
A good example of this is with wireless routers that Cisco offers. The old outdated router the
Linksys WTR54G is replaced with the newer Linksys WRT54GL. Cisco is good at market
transitions to acquire or create new technology. Since Cisco is in the corporate stage of maturity,
Cisco will need to be able to provide new technology in order to prevent itself from going into
the next corporate stage, decline. Since Cisco’s corporate strategy is growth, Cisco continues to
acquire successful companies that can help Cisco create new technology.
Having different R&D plants in different countries, such as China, means that Cisco will have to
accommodate the different institutions in the surrounding area. The CRDC, which is Cisco's
Chinese R&D site, works with Chinese universities to help develop their networking solutions
not only the Chinese market, but for the global market. The Chinese plant has been running for
about 5 years now, and in recognition of this occasion Cisco has emphasized its determination to
bring such networking solutions like cloud computing to be available in the Chinese market.
R&D managers do the following
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bringing people together to achieve a common goal
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lead R&D efforts of the company from its inception to finished product
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develop prototypes for variety of products based on the current technology
·
manage multiple site teams and develop several products in conjunction
Operations and Logistics:
Cisco’s current manufacturing/service objective is to “create unprecedented value and
opportunities for its customers, employees, investors, and ecosystem partners” (Wisconsin
website). This means that the company’s manufacturing and distribution system create customer,
partner, and corporate value by having reasonable shipping times, working together with partner
to insure manufacturing success, and making sure that manufacturing facilities are performing
well so shareholders can acquire a positive return on investment. In order to insure
manufacturing/service objective success, Cisco has implemented its customer value chain
management (CVCM) program, which according to the company, “brings together
manufacturing, supply chain management, customer service, and quality management to form a
new kind of organization focused on the customer experience” (Wisconsin website). CVCM
manages partner relationships with over 1,000 suppliers, 5 key partners, and 4 contract
manufacturers. Here is a list of manufacturing/service strategies that Cisco executes:
·
Acquisition integration. Cisco acquires companies that have proven successful in the
technological industry. Cisco uses these companies to help with the distribution process to ensure
customer satisfaction.
·
Most products are configured to order. Cisco makes sure that all products are tailored
to customer needs. Cisco’s products are meant to serve and protect corporate IT and other
technological operations.
·
Cisco makes sure that manufacturing facilities have all the necessary product parts
and supplies. Cisco’s manufacturing facilities have over 50,000 purchased parts for product
development (Wisconsin website).
Policies include that manufacturing facilities are employee safe. Cisco does not want to incur
lawsuits and other legal fees from safety violations and hazards.
Some of Cisco’s strategies and programs are not implied from Cisco’s overall performance.
Some of Cisco’s customers are starting to shop with competitors, because of shipping times. The
average shipping time for Cisco’s products is 1 month. Competitors have been gaining a
competitive advantage in gaining customers due to having better distribution systems. One way
that Cisco can strengthen its distribution system is acquiring partners that have excellent
expertise in implementing effective distribution operations. Aside from Cisco’s distribution
problems, the company performs relatively well against competitors. Manufacturing facilities
and warehouses have been effectively balancing inventory costs, costs per unit of labor are
relatively similar to competitors, material and inventory control are effectively managed to fulfill
consumer demands. Cisco has been recognized in public relation statements about having better
production ratings compared to similar corporations. The trends that emerge from this analysis
suggest that Cisco has a lower percentage of orders shipped on time compared to competitors in
the past and present. If Cisco does not increase its percentage of orders shipped on time, the
company will incur a decrease in customer loyalty in the future. This means that Cisco may have
to change some of its strategic decisions in the future to have its distribution system perform
better. If Cisco increases its percentage of orders shipped on time, Cisco’s operations will help
the company have a greater competitive advantage over competitors, because more customers
will remain loyal to Cisco.
Other than Cisco’s distribution problems, manufacturing/services are consistent with the
corporation’s overall mission, objectives, strategies, policies, and programs. Here is a list of
Cisco’s overall mission, objective, strategy, policy, and program and how
manufacturing/services relate to each one:
·
Mission Statement: “Cisco enables people to
make powerful connections - whether in business, education, philanthropy, or
creativity. Cisco hardware, software, and service offerings are used to create
the Internet solutions that make networks possible-providing easy access to
information anywhere, at any time” (Cisco corporate website). Manufacturers use high-quality
product parts and supplies to ensure that customers will be satisfied when they use Cisco’s
products for either business, education, or philanthropy.
Objectives: “Cisco helps service providers build flexible, scalable, and secure networks
that deliver profitable services for sustainable success” (Cisco corporate website). This is the
reason why Cisco manufactures products to tailor to individual corporate needs. The company
believes that in order to deliver profitable services for sustainable success, the products have to
be uniquely designed to protect and help each company’s technological operations.
·
Strategies: "Cisco's strategy is based on catching market transitions” (Cisco’s corporate
website). In certain ways, this is true when it comes to Cisco’s manufacturing/services. Just as
the company acquires other companies for new technology, Cisco needs to acquire companies to
help the company develop a more successful distribution system.
·
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Policies: All employees will be ethical in their work and will do their best to prevent
hacker access to critical information (Cisco corporate website). Cisco’s manufacturing/services
differs slightly from the company’s overall policies; however, Cisco has created its policies to
not only protect valuable information, but its employees as well. Manufacturing/service policies
state that all manufacturing facilities have to be worker safe.
·
Programs: Programs includes customer satisfaction programs, such as classes that help
community members learn how to fully utilize Cisco’s products and create strong networks and
partnership programs. CVCM is one of Cisco’s manufacturing/services programs to increase
positive customer experiences. Hopefully, CVCM will work in increasing more orders being
shipped on time in the future.
Cisco’s operations managers use appropriate concepts and techniques to evaluate and improve
current performance. Operations managers investigate manufacturing facilities are worker safety
by checking equipment and production materials. They also make sure that employee scheduling
will maximize employee performance to maximize overall manufacturing performance. When
there are any problems that occur in any manufacturing facility, operations managers are the
ones who establish controls to insure that the same problems do not happen twice. These controls
could be policies that may state how employees should pursue certain things in order to prevent
safety hazards from occurring again. This is also part of the quality control and reliability
process. The role of the operations manager is:
·
Oversee that distribution channels are functioning properly.
·
Manage employees.
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Execute strategic decisions.
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Help with planning and implementation.
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Oversee manufacturing facilities.
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Manage cost systems.
·
May oversee and help with engineering programs to insure success and help establish
controls to prevent potential issues.
One of the main factors that Cisco takes into consideration is environmental sustainability when
making manufacturing/operations decisions. Since consumers are sensitive to companies
polluting, Cisco has established controls in its manufacturing facilities to only release a certain
percentage of carbon dioxide and other chemicals into the air and ocean (Cisco’s corporate
website). Another reason why Cisco establishes environmental controls is because of the
environmental regulations that each country has. The company does not want to lose its privilege
to operate in certain countries. The environment can impact Cisco in a negative way. For
example, the company cannot provide as much customer value if there are natural disasters that
creates shortages of certain materials, which would cause product prices to rise. Not only can
Cisco face natural disasters, but the company can also face labor problems as well. Cisco’s
manufacturing facilities are subject to local and national strikes. In order to prevent these
problems from occurring, Cisco follows the labor laws in the countries in which the corporation
operates in. In order to maximize manufacturing performance, Cisco uses an appropriate number
of people. These employees bring different skills “to the table” to maximize manufacturing
performance.
Cisco is service-oriented, providing many solutions to businesses such as database management
and security solutions management. Enterprise businesses as well as schools rely on Cisco to
enforce information systems security in its computer labs and its data warehouses to protect
school staff from hackers and compromises in its databases. The extent of Cisco’s operations
also extends in healthcare organizations as well as hospitals to implement a communication
system that improves information flow and gives healthcare knowledge to professionals. This
communication system is the picture archiving and communications systems or PACS that
supports hospitals in a way of creating integrated networks between physicians, laboratories and
pharmacies. Typically hospitals would have 300 applications in any given day and many
hospitals maintain these networks to help with various hospital functions such as information
about chronic diseases and patient information. Cisco’s healthcare solutions not only are done
domestically, but extend internationally as well. The Cisco for Healthcare program offers a
variety of affordable services to international healthcare businesses to help them transform and
address the healthcare industry’s primary concern. Cisco is focused towards providing these
organizations with the healthcare information they need. Additionally, Cisco outsources enough
to remain competitive in the marketplace. The Cisco Outsourcing Channel Program recognizes
the value of outsourcing where the outsourcing partners have the opportunity to make multimillion dollar deals with Cisco and gain additional financial rewards. As a channel partners to
Cisco, such organizations gain a better delivery system that extends internationally therefore
gaining an efficiency towards worldwide delivery. Not only that, but Cisco does enough
outsourcing to differentiate itself from competitors. Cisco partners market their own brands
while taking advantage of the leading networking brand which is Cisco. Purchasing is also being
done appropriately through Cisco’s Vendor Management Office (VMO). The VMO acts as a
middleman between buyer and seller, by helping them manage their contracts. This creates a
more efficient supply chain because the VMO prevents backorder problems which Cisco has had
in the past. Additionally, when the contract is near expiration, the VMO helps with the timely
renewal of the contract to help Cisco and its buyers to remain satisfied. (Cisco Healthcare
Solutions Website)
Human Resources Management (HRM):
Aside from the operation manager’s role in strategic management, Cisco’s HRM mission is
creating an organization with employees that are eager and able to address key competitive
challenges. This means that Cisco should focus its objective of retaining superior talent and
stimulating employees to do their best. With the importance of customer service to Cisco, their
aim is to have employees who can deliver great service day in and day out, even with the most
difficult customers. One of Cisco’s HRM strategies is to integrate all of its human resource
processes in the web. Some HR processes took several months to migrate while others took a
little over a year. By the year 1999, most of the HR workforce applications have been
implemented in the internet. According to Reed of Cisco, “It’s a self-service environment at
Cisco. You can do almost everything yourself online (MIT.edu).” The new HR web application
allowed real time access to employees from scheduling meetings, to reserving conference rooms,
and to adjusting payroll deductions on the fly. The following HR strategy not only gave Cisco
cost-savings, but also reduced headcount. It allowed employees to be immersed on the web.
Some employees spent their time training online, and some new-hires spent time doing online
orientations. One of Cisco’s HR policies is the “on/off- ramp leave policy,” where an employee
can, with managerial approval, leave his/her job at Cisco for a one to two-year period. The
employee of course remains in contact with the company and returns at a defined time, provided
a position has been secured upon return. This policy provides employees a career break while
remaining connected with Cisco (Cornell.edu). Moreover, corporate HR programs have become
important to Cisco’s operations in terms of making an integrated career development plan that is
tied to their strategic objectives. These strategic objectives are clear specific, and HR makes
them actionable. One of Cisco’s HRM programs is the Cisco Leadership Series Program which
was started during fall of 2002 (Pepperdine). Fifty Cisco executives had been involved in
designing and launching four CLS programs to build the company’s “leadership bench strength”
(Berkeley.edu). The program is divided up into three phases which assesses the employee’s
ability to put learning into action. The employees that are involved in the program go through
each of the phases: preparation, program, and application. There is a face-to-face portion with
managers which can last five days, but the participant can expect to be involved for eight to ten
months. The program focuses on specific levels of Cisco leaders at distinct job learning
opportunities.
Cisco is consistent with their objectives, strategies and policies. Cisco’s HRM strategies are
consistent because they are using a HRM strategy that most corporations are using such as
integrating most of their HR functions in the web. Doing so has increased productivity in the
company and has established the Cisco Employee Connection website (CEC). The CEC was the
first internal website that most Cisco employees visited and was a good example of Cisco’s
commitment in automating their HR processes as well as their strategies. CEC allowed HR
employees the ease of filling out forms online. Not only that, but the website had the most
information available in Cisco’s intranet. Barbara Siverts, an employee of Cisco said, “Even
long-time employees continued to visit the human resources website. (MIT.edu)” Additionally,
Cisco is consistent with its mission of retaining an organization of employees with superior
talent. Cisco employees not only had a great time at their jobs, but the company empowered
them; giving them access to information to help them make their own informed decisions. Cisco
employees were also expected to take initiative. For example, customer satisfaction is taken
seriously at Cisco. The employees have to decide about the solutions that will work for their
customers and decide how they can positively impact them. Moreover, to enable Cisco to realize
its mission, setting goals and objectives had become important. Employees had become
accountable at setting a quarterly set of objectives that were meant to be specific and measurable,
that they can be easily achieved. In terms of their internal environment which consists of their
employees, Cisco sticks by their objectives of building and retaining a quality team of
employees. Cisco hires 10% of their prospective employees that provide value to the firm and
release 5% of the ones who could not perform beyond expectations. Cisco additionally put a
considerable time of training them (Cornell.edu). The company tailored specialized training and
new-hire orientations for employees in various functional divisions such as sales and IT. At the
same time, they are consistent with their policy of letting employees take needed vacation
breaks. This not only helps tend to employee needs, but also gives them ample time to rest from
the intense nature of working with a large company such as Cisco. All of Cisco’s HRM
objectives, strategies and policies are clearly stated. Because of these, the company has realized
low employee turnover rates. Additionally the company has gained a return on investment by
integrating its HR processes online. Cost-savings have also become an advantage for this
automation process because employees have saved time from off- site employee training and
filling out paper forms. Forms can be submitted electronically online at ease (MIT.edu).
The company’s HRM is performing fairly well in terms of improving the fit between the
individual employee and the job. With Cisco’s commitment to technology and the introduction
of telecommunication, employees have been satisfied in doing their jobs from the comfort of
working in virtually any location. With the following flexibility, employees have gained good
quality work life. They can schedule their work hours with ease, and eliminate the need for a
daily commute. By having this telecommuting technology, employees can work full-speed
reducing both time and cost for Cisco. Additionally, employees have taken advantage of this
flexibility to balance the needs of their family and any commitments that they may have. Under
HR’s utilization of the telecommuting program, participants reported gaining 30 minutes per day
with no commute time. This has improved the quality of life of workers where they have the
ability to stay home and tend to sick family members while handling their work obligations
(Boston College). This is the sole reason why Cisco was listed number six on the list of
Fortune’s best companies to work for in 2010. Figure 1.5 shows the structure of
telecommunication.
Cisco listed number one in telecommuting options, and they have also made the list in the salary,
bonus, and companies with the lowest employee turnover rates. Quality employee training was
also the reason why the quality of work life at Cisco was phenomenal. The Cisco University
program provided employees an array of training tools and development opportunities where
they can manage their careers and other activities related to career development. The Cisco
University has created successful managers that are committed on working with Cisco.
Additionally, Cisco University in effect improved employee satisfaction, retention, and
productivity (Cisco Web Site). Despite the company’s high HRM performance, they need to
continually watch their layoff rate which is a threat to HRM performance. Cisco has reported that
they have continued to trim their workforce at their headquarters at their headquarters at San
Jose, California. Company sources say that about 600 to 700 employees have received layoff
notices (Fortune). This large scale employee restructuring was part of the company’s plan of
realigning their resources. Moreover, more than 66,000 employees have been laid off Worldwide
which accounts for 1% of Cisco’s entire workforce. This has therefore negatively affected HRM
performance. These cost-saving measures are being implemented worldwide and according to
Cisco CEO John Chambers, “If they have to do layoffs, Cisco has to try everything possible to
avoid them.” Layoffs are considered bad for the company because they affect employee-job fit.
The trend that emerges from this analysis suggests that Cisco receives cost-savings from their
training and telecommuting measures. Cisco should therefore focus their future strategic
decisions towards improving their telecommuting infrastructure and HRM performance in terms
of their training programs that help improve the fit between the individual employee and the job.
By implementing these strategic measures, they will help Cisco gain a competitive advantage.
Many other companies don’t have telecommuting programs that allow employees to work in the
comfort of their own home (Fortune).
Figure 1.5: Cisco Telecommuting Infrastructure:
Cisco listed number one in telecommuting options, and they have also made the list in the salary,
bonus, and companies with the lowest employee turnover rates. Quality employee training was
also the reason why the quality of work life at Cisco was phenomenal. The Cisco University
program provided employees an array of training tools and development opportunities where
they can manage their careers and other activities related to career development. The Cisco
University has created successful managers that are committed on working with Cisco.
Additionally, Cisco University in effect improved employee satisfaction, retention, and
productivity (Cisco Web Site). Despite the company’s high HRM performance, they need to
continually watch their layoff rate which is a threat to HRM performance. Cisco has reported that
they have continued to trim their workforce at their headquarters at their headquarters at San
Jose, California. Company sources say that about 600 to 700 employees have received layoff
notices (Fortune). This large scale employee restructuring was part of the company’s plan of
realigning their resources. Moreover, more than 66,000 employees have been laid off Worldwide
which accounts for 1% of Cisco’s entire workforce. This has therefore negatively affected HRM
performance. These cost-saving measures are being implemented worldwide and according to
Cisco CEO John Chambers, “If they have to do layoffs, Cisco has to try everything possible to
avoid them.” Layoffs are considered bad for the company because they affect employee-job fit.
The trend that emerges from this analysis suggests that Cisco receives cost-savings from their
training and telecommuting measures. Cisco should therefore focus their future strategic
decisions towards improving their telecommuting infrastructure and HRM performance in terms
of their training programs that help improve the fit between the individual employee and the job.
By implementing these strategic measures, they will help Cisco gain a competitive advantage.
Many other companies don’t have telecommuting programs that allow employees to work in the
comfort of their own home (Fortune).
Cisco’s HRM is performing fairly well because the company is successful in sustaining their
supply of employee talent. Cisco’s HRM managers are making strategic decisions towards its
incentive compensation and establishment of the Cisco Leadership Series programs to build a
skilled and diverse workforce. Managers are allocating their labor sources in showering suffice
bonuses to keep their employees satisfied as well as providing needed training for new-hires at
their Cisco Employee Connection website. Cisco has such a high HRM performance because
they have an HR/IT collaboration that extends all throughout the organization. IT has developed
a telecommuting infrastructure that has enabled employees at the comfort of their own homes.
This has reduced down time caused by commuting and has given employees the ability to
balance their work priorities with their lives. Cisco also continually improves the synergies of its
business units and plans to extend HRM partnerships with the finance division in the future.
Although Cisco has a high performance at HRM, they have to continually watch competitors
such as Apple and IBM who are performing equally well in HRM performance as Cisco. Apple
for example has a highly performing HRM which develops and retains its most valuable assets
which are its employees. Apple provides the employees counseling, compensation and benefit
programs to ensure that Apple has the people it needs to reach its goals and objectives.
Cisco’s Human Resource managers are using appropriate concepts and techniques to evaluate
and improve corporate performance. The HRM manager uses methods such as attitude surveys to
evaluate employee opinions about the company’s position. During that process, four hundred
employees were selected to participate. The survey additionally focused in a wide array of topics
such as Cisco’s efforts toward environmental responsibility, Corporate Social Responsibility and
technology. With integration of the survey process in the Internet, the HRM manager has made
use of media including blogs and video blogs to collect information about employee- related
matters. Additionally surveys allowed employees to communicate if they are satisfied with their
jobs as well as share ideas of how they can improve the company. HRM managers have also
made use of appropriate techniques to improve corporate performance by implementing effective
development programs for employees. The Cisco Leadership Series was an example of such
programs that has enabled employees to gain the ability to put learning into action. Not only that,
but it has benefited employees because the program has walked them through three steps of
gaining the leadership they need to succeed in the workplace. These programs and more have
certainly help boost company performance because trained employees became efficient ones.
There are a lot of business reasons that companies such as Cisco identify the need to build a
diverse workforce and sustain it with their R&D strategy. When Cisco moves toward the global
marketplace, they see that similar corporations are constantly looking for an edge towards the
changing customer base. Looking for a variety of employee talent to serve that base is important
to offer an opportunity to enter those new markets. At Cisco they have a philosophy that
“Connecting partners, suppliers, customers, employees and communities is important to their
success. (Cisco Website)” That is the sole reason why they have done well with their
management of their workforce. Right now Cisco has 83 percent of their global talent consisting
of women and minority groups. According to market research, the company performs well in
terms of the diversity of its workforce because they have employee teams with diverse and
employees with different ethnicities. The result was an innovative team that is less prone to
groupthink which is a tendency to defend the wrong ideas because everyone in the team thinks in
the same way. In regards to Cisco’s Equal Opportunity Policy, the company commits towards
recruiting, promoting, and training people regardless of their race, color, religion, etc. Overall,
Cisco has a total of 38,056 employees worldwide with 71 percent in the United States, 15 percent
in Europe, 9 percent in Asia, 2 percent in Japan, and 3 percent in Central and South America.
Figure 1.6 shows the percentage of employees by region.
Figure 1.6: Employees by Region
Cisco’s HRM adjusts to conditions in each country in which the company operates. Cisco adjusts
to global locations such as Japan and South America in adherence to social policies regarding
employment. Cisco has to consider that customer needs are different from these developing
countries so Cisco has to hire specific employees who can provide solutions to these markets.
Because Cisco outsources its employees, they have to train their employees to adjust to
organizational norms and the ways the offsite company does certain tasks. Additionally, in
regards to their code of conduct in developing nations, Cisco has to invest in HRM programs that
benefit societies on communities where Cisco operates. The Social Investment Program ensures
that Cisco provides developing countries support for education, grants, and employee
volunteerism. By assisting with these needs, Cisco has helped developing countries towards
global and social development (Cisco UK).
The role of outsourcing in HRM is to align many of the company’s resources and allocate its
labor force in other parts of the world for some needs cost-savings. Cisco has successfully
adopted outsourcing as a strategy to gain market leadership and to enter new markets that
haven’t been tapped into. Cisco employees were moved to Cisco businesses all over the world to
develop technology quicker and cheaper than actually working on the same technology in the
USA. Overall, IT outsourcing is a $244 billion dollar industry and the Cisco CIO found out that
surveyed enterprises outsourced 2.5 percent of their HR budget. The reason why Cisco
outsources was to help with customer demand in other countries and to provide the expertise of
its trained employees. With outsourced employees in India and China, international enterprises
can receive the benefit of certified US employees to lead them with their database needs and
towards securing their networks (Cisco website).
Here are the roles of the HRM manager in the strategic management process:




Partner with senior leaders to identify the HR priorities to ensure their delivery
Develop leadership and people management skills and displaying company behavior
complementary to Cisco’s values and culture.
Provide input towards complex compensation decisions towards employees.
Work effectively with HR Business Partners and lead the implementation of any
international led change and initiatives (Cisco UK Website)
Information Systems (IS):
Cisco’s current IS objectives and strategy is focused around extending their network technology
as the platform. They seek to expand their market share against competitors such as Hewlett
Packard and at the same time, increase their customer’s information technology spending (Cisco
Annual Report). By then, the company focused its capability in networking and expanded into
new product markets where the role of the network was to become a platform to increase their
information technology business strategy. Cisco made a market transition and made their move
towards realigning their resources in 2010. The company reduced their operating expenses and
paid more attention to virtualization, cloud computing, video, collaboration, and web 2.0
technologies. They believe that moving into new markets in regards to these advancements is an
example of a corporate growth strategy and a step to becoming a leading global competitor. At
the same time, because of the growing nature of technology, they were able to adopt the cloud so
easily which “refers to an information technology hosting and delivery system in which
resources, such as servers and software applications, are no longer tethered to a user’s physical
infrastructure.”(Cisco annual report) Cisco’s transition to these technologies has also enabled
them to integrate their existing products. They began to combine networking, computing and
storage to gain a competitive advantage which allowed Cisco to introduce a new line of products
such as the Cisco Unified Computing System platform and the Cisco Nexus platform. In
addition, Cisco was able to capitalize in this transition to other cloud-based products and service
offerings that are intended to enable customers to implement their own IT solutions which
included software as a service (SaaS) and other as a service solutions (XaaS) solution(10-Q).
Moreover, Cisco has other IS objectives such as assessing their security needs and tailoring
various security products and policies. The following policy is called the security policy which is
a practice of helping management with a direction towards information security. The following
protects the organization from external threats such as viruses and sustains the company’s
information systems. These policies that Cisco has developed have to be in accordance to several
laws and regulations. Another IS objective that Cisco wants to reach is quality asset
management. This is the achievement of an optimal level of protection towards the company’s
informational assets. Cisco has to hire quality IT personnel to achieve this objective and at the
same time have full proof protection from malware and Trojans. Providing human resource
security is another important component in pursuit of their objectives. Cisco ensures that
stakeholders such as their employees understand their responsibilities and their suitable roles.
They have to be aware that security breaches and threats are out there so they have to address
this problem with their managers immediately (Cisco Website). With the increasing demand of
Cisco towards IS security, certain certifications are required so that employees are skilled enough
to work at the IT department. These certifications are obtained from accredited bodies and have
become a standard goal for many organizations such as Cisco. This is the sole reason why the
company established the Cisco 360 Learning Program. These programs add value to employees
because they receive hands-on learning to ensure that they have the latest skills and knowledge
to support the organization’s large network. Employees that are involved in the program learn
about information security and how they can protect the company databases. The program is
described as an enhanced learning program that adds additional value and training that will help
employees advance in their learning. In this program IT staff is also equipped with a curriculum
that will accelerate their competency in the workplace. Upon completion of the program,
employees are encouraged to take CCIE R&S exams so that they can apply what they learned.
Upon passing the exam, the employee is finished with the program and receives a CCIE
certificate (Cisco Website).
Cisco’s objectives, strategies and programs are merely implied from company performance.
During the fiscal year of 2010, Cisco has reported that its net sales has increased a record high of
$40 billion, which is an increase of 11% compared to about a year ago. The company’s focus on
cloud technology, virtualization and the integration of their products has enabled Cisco to
increase their overall IT capabilities. This has in change enabled Cisco to introduce new product
lines such as the Cisco Nexus and has increased annual product sales by $32.4 billion. Their
dominating position in the networking market was also due to the IT solutions that they offer to
protect businesses from external threats such as viruses. Certified IT personnel has also received
sufficient certifications that will enable them to test their skills in the enterprise environment
Their adherence to security measures and their skills as IT service staff, has created service
revenue of 19% which represents annual sales of $7.6 billion. This increase in sales was also due
to the increase of global demand for their products and because of the gradual recovery of the
global economy. Consumers have regained their confidence as Cisco continuously tailors their
products and services to fit customer’s needs (Cisco Annual Report).
Aside from their objectives, strategies, policies and programs, Cisco is consistent with the
corporation’s mission, objectives, strategies, policies, and with internal and external
environments. Although the task of management towards information security is cumbersome,
Cisco has effectively provided strategic standards in addressing the organization’s security
concerns. Management has determined the amount of security features needed, policies for
managing information and human assets, criteria of assessing the effectiveness of security
measures, techniques for the ongoing assessment of security, and procedures of managing
security threats. Figure 1.0 shows Cisco’s strategic approach towards information security
management. Not only that, but the various approaches deal with Cisco’s internal and external
environments. The following approach has two aspects in providing information security:
process and products. First is process security which looks at information security from the view
of management’s procedures and policies. Second, Cisco focuses on its policy of product
security which looks at the technical aspects and use of certified products in the IT environment.
In figure 1.0, the term technical standards is also mentioned which refers to IT network security,
access control and key management. Next, there are procedures which are practices that are
identified and enforced by top management. These are guidelines for information classification
and policies for assigning user ID’s. In addition; management system audits, certification and
accreditation entails management policies and procedures for the certification of information
system products. Code of practice is the specific policy that defines the roles and responsibilities
of Cisco employees in maintaining information security. Assurance is about evaluating products
and systems testing. Lastly; cultural, ethical, social and legal issuers are human aspects to
information security.
The company IS is performing fairly well in terms of providing a useful database system because
they have a substantial amount of information system assets including databases and files related
to personnel, company operations, financial matters and so on. Their databases are complex,
consisting of a multitude of data warehouse systems, servers, workstations, local networks, and
other internet network connections (Stallings). One database that Cisco maintains is the
manufacturing resource planning (MRP) database. In this database, Cisco would enter in new
parts that they have received and make a price list on the day when the deal has closed. Next, a
transaction would be conducted electronically one by one as the bill of materials for each
supplier company product was recreated in the MRP database. The following was an effective
part mapping process where Cisco engineers analyzed every part that went into each of their
products (Stanford Graduate School of Business). With this effective database, IS managers have
to watch out for security failures and prevent any informational anomalies. Cisco’s database
designers, who are responsible for database implementation, are skilled enough that they can
prevent financial losses, civil liability, and identity theft. The IS also performs at an optimal level
in terms of automating the company’s routine clerical operations. By the IS automating clerical
operations, the Cisco clerical staff has seen their workload drop significantly, now that they don’t
have to spend hours each day typing handwritten reports (Cisco Website). Additionally,
automation has enabled Cisco realize needed cost-savings. By automating clerical tasks, Cisco
was able to reduce the amount of employees who were required to do the same job. This has let
Cisco replace inefficient employees and provide existing staff with more to do. Cisco Intelligent
Automation for Cloud Computing was one IS program that let the company automate its
billing/chargeback and service operations. The automation programs self-service interface
allowed end-users to view their service options and enables them to order services by filling out
forms that is queried to the Cisco database. Next, the billing process is applied with the customer
order method and payment methods. They also ask customers if they want a chargeback. The
program then manages the lease period so that if a service is no longer needed, then the system
will mark it as expired. Figure 1.7 shows the Cisco’s automation strategy
Figure 1.7: Cisco Automation Strategy
IS also performs well with its duties of assisting managers with the use of web-based workforce
applications that aids managers with routine decisions. The applications gave managers more
information about their employees as well as gain the knowledge to handle their human resource
responsibilities. One tool that IS has given managers is CafeMOCHA which is an online,
paperless application that allows managers to make pay changes, transfers, stock awards, and
termination of employees. The IS tools allowed managers to make strategic decisions for Cisco
(MIT.edu). The trends that emerge from this analysis suggest that their methods of collecting
information and designing an effective database system allows Cisco to improve their IS
performance. This allows them to make better strategic decisions to reach a higher revenue
stream. Their past performance has been phenomenal because of adopting these technologies so
they should focus their future strategic decision towards building better database systems.
Focusing on a more effective IT infrastructure will truly complement their pending strategic
decisions. By implementing IS databases, they will gain access to a vast resource of information
that will allow them to gain a competitive advantage. Other competitors cannot compare with
Cisco because as a technological company, Cisco has improved with its methods of database
systems design over the years.
Aside from Cisco’s database design, its IS performance is strong because the company has used
it to support different elements of its business strategy. It has allowed Cisco to be the largest
networking company. Additionally, this strength has allowed Cisco to harness the power of its
information systems to establish a dominant position in the Internet era. The company has
utilized its IS to implement the virtual organization which is a technology which aids with
outsourcing employees and other customer service functions. They have also focused their IS
efforts in creating the Internet Operating System (IOS) which is a standard of controlling routers
and switches that directs information across the Internet. (Kraemer). Although Cisco’s IS is
strong, close competitors such as HP has a stronger IS performance. Hewlett Packard’s billing
system Infranet, is much more secured than Cisco’s. Infranet uses an encrypted password that
blocks hackers and cyber threats from accessing HP’s billing servers. HP’s more effective billing
system protects its stakeholders from identity theft. This is why HP is a more preferred provider
for IS solutions and the reason why it has a larger pool of customers.
Cisco’s IS managers are using appropriate techniques to evaluate and improve corporate
performance. IS managers use the corporate value chain to examine the product line’s value
chain with the various activities involved in producing the product and service. IS managers
identified various activities that can be considered strengths (core competencies) or weaknesses
(core deficiencies), and analyze if their strengths are providing them with a competitive
advantage (Wheelen and Hunger). Additionally, the value chain examines the linkages with each
product line’s value chain and examines synergies between different business units. Cisco uses
and aggressive strategy to outsource business functions that are not core competencies,
partnering and sharing knowledge with its partners. They maintained relations relationships with
partners such as HP ton increase their knowledge which drives Cisco to higher levels of
performance and operating efficiency. IS managers have used the value chain to strengthen the
delivery of their IS services and activities focused on customer convenience. To maximize their
customer convenience, Cisco needs to integrate all of the company’s IS with the internet ecommerce. The state of Cisco’s e-commerce is such that the customers don’t take advantage of
Web ordering which is incompatible with their internal systems. Cisco has resolved the
following problem by allowing large customers such as enterprise businesses to integrate their IS
processes with the Cisco website. Sometimes Cisco customers would buy products and network
upgrades from them, but other times they would be supplied by Cisco’s competitors. Cisco
believes that its core competencies in product development and relationship management will
drive them to higher levels of the value chain (NYU.edu). IS managers also make good use of
the value chain by examining the synergy between various functional divisions in the company
such as IS and R&D. The goal of R&D is to speed up the introduction of new products such as
Cisco’s Nexus platform that will enhance all of Cisco’s IS database management. The synergistic
partnership between IS and R&D is important due to an industry change characterized by
shrinking product life-cycles. Taking steps of introducing products quickly will enable Cisco to
maintain efficiency and corporate performance. Figure 1.8 shows the corporate value chain.
Figure 1.8: Porter’s Corporate Value
Aside from the value chain, IS managers know how to build and manage complex databases.
Managers have embraced the use of hardware, software, and networking protocol standards
when building their database and the Cisco CIO has focused on managing it ruthlessly. The CIO
has implemented a wide range of hardware and software and integrated it with their complex
database. This has allowed the company to reach economies of scale when purchasing products
and IS software (MIT.edu). The managers implementation of IS standards was also instrumental
for two companies to integrate their database systems. For example, when Cisco acquired a
company, they immediately moved the company over to the Oracle database which is in use at
Cisco. If the company had a more advanced Oracle database, then it rolled back to the version
that Cisco was using. IS managers have also implemented effective decision support systems in a
form of its Oracle corporate system. Cisco has maintained its Oracle database that is available for
access outside the organizations. Manufacturers and distributors have made use of this decisionsupport system to make a decision to make electronic purchases through Cisco’s ERP systems.
This decision planning system was put into place in 1998 and offers key features that included
information on past usage, risk analysis of parts, and analysis of pipelining parts. In addition this
decision support system helps make comparative analysis statistics of the number of parts that
are possible missing. This was the key tool to enable effective supply chain management
(NYU.edu).
The company in general has a global information system that lets Cisco deliver data with ease
across national boundaries. Cisco announced in December 6th 2010 that they will partner with
Shell to implement a global energy-efficiency project that is targeted towards a worldwide IT
infrastructure. The GIS will be in charge of calculating carbon dioxide footprints while Shells IT
is integrated with Cisco’s GIS to measure global energy usage patterns. This decision support
system will surely improve Cisco’s decisions towards environmental sustainability and
efficiency in terms of assisting with Shell’s operations. The resulting effect of the following IS
global initiative will cut Cisco’s costs and CO2 emissions. Cisco’s IT will ensure the
virtualization of its storage, data centers and offices (Cisco Press Release).
The role of management in the strategic management process is to effectively assess the security
needs of the organization and to help evaluate and choose IT security products and policies. To
do this, the manager has a systematic approach of defining the requirements for security and
identifying the ways to satisfy all the requirements (Stallings). These requirements that the
manager has to adhere by include implementing high speed connections; voice, data and video
networking equipment; computers, servers, and storage; and security and support. The Cisco
global network is so innovative that it is at the utmost importance that the manager obtains
technical knowledge of the organization’s various products and the dynamically changing
environment. On top of these responsibilities, the IS manager needs to be involved with calling
up local suppliers and ordering whatever is needed. With the following process representing the
most expensive solution for Cisco, the IS manager should maintain formal contracts with
suppliers to remain in agreement with them in terms of prices, warranties, and support. IS
managers, at times, are ineffective in this arena because sometimes, IT groups would make a
request for proposals or quotes (RFPs and RFQs), and award the business based on responses.
Even though this results in better prices, the proposal process was inconsistent, resulting in the
lack of emphasis of the IS manager’s establishment of strategic vendors or future planning.
Because of this lack of consistency, the relationship between Cisco and its vendors have been
negatively affected. The contracts have not set the proper expectations for both seller and buyer.
This was a very serious situation in Cisco’s part because the sales team has begun complaining
that the situation was affecting their relationship with customers. To address this problem, the IS
manager has added roles such as forming the vendor management office (VMO). The purpose of
the VMO is to develop a strategic approach to selecting vendors that would reduce risks and
costs for Cisco. The VMO allows better networking between vendors and decreases costs for
Cisco due to the efficiency it creates. This is what the VMO does: Negotiate- When a vendor has
been selected, the VMO manages the negotiation. Contract- after the negotiation has been done,
the Cisco purchasing group makes sure that the contract has been signed and works with the
legal department to solve any issues regarding the contract. Next is Compliance- upon signing of
the contract, the VMO generates quarterly reviews that compare commitments and performance
with an established criteria. Renew- When the contract has expired, it is time to renew it. At the
same time, the VMO reestablishes its contractual responsibilities with vendors and engages them
to restart the whole process. It is important to begin the process with enough time before the
contract expires. This gives Cisco enough time to investigate options. The following process is
shown in figure 1.9 (Cisco IT Case Study).
Figure 1.9: VMO Strategic Approach
Summary of Internal Factors
IT would be a good source for outsourcing to India due to India’s outstanding education in
engineering. Also, Indian employees would save Cisco millions of dollars each year if the
company’s engineering department moved to India instead of the United States. The biggest
problem that Cisco faces is its weak distribution system. The company should look for key
partners who have strong distribution systems to learn from them. This will fulfill Cisco’s goal of
having the average shipping time 1 week. Not only will this fulfill Cisco’s distribution goal, but
will also increase customer loyalty, because many customers will not have to conduct business
with competitors to get the products they need.
Analysis of Strategic Factors (SWOT)
The most important strategic factors Cisco faces are listed in the SFAS table (appendix 1). For
strengths, Cisco has great HR and R&D SBU’s. It can utilize these when formulating strategy to
seize opportunities and minimize threats. The biggest weaknesses for Cisco include supply chain
and limited resources. Cisco needs to be aware of these and attempt to strengthen them through
opportunities or at least minimize them to avoid threats. In terms of opportunities Cisco has great
acquisition and globalization strategies that it can benefit immensely from. Lastly, the greatest
threats affecting Cisco are its competitors (such as Siemens and Netgear) and hackers. Through
analysis of many factors these are the most heavily weighted and most important to focus on for
Cisco’s future strategy.
The current mission and objectives are definitely appropriate and should stay in place. Cisco has
no need to drastically change any of their current objectives as they are already focused on these
factors. In developing their strategy over the next one to two years, they’ll need to apply a
sharper focus to certain SBU’s. The overarching strategy Cisco has in place currently benefits
and will continue to benefit them as they rework performance objectives within their SBU’s.
Strategic Alternatives and Recommended Strategy
Strategic Alternatives
Cisco has positioned itself very well over the years and is a successful company because of that.
CEO John Chambers has helped Cisco overcome many obstacles and reinvigorated not only
upper-management but, he also lived the Cisco vision because he believed in it. Cisco’s current
strategies have not changed much since Chambers had taken over. With more careful
implementation of current strategies, much more can be accomplished. Essentially, fine-tuning
strategies is always helpful in the sense that they serve to better understand and improve
whatever operations are most needed to accomplish set objectives.
Cisco’s financials, for example, are very good despite a lagging economy. More can be done to
determine the best financial course of action but at the same time, timidness can cause a lot of
problems. Generous funding for certain business functions are needed to ensure success. Cisco
can afford extra costs, but it cannot afford a lack of innovation and imagination. Reducing costs
by eliminating inefficiencies are the primary concerns when tuning financial strategy.
Marketing can use more work to help capture a larger market share. Cisco’s products and
services are not going away anytime soon but most of them are also not going to sell themselves.
There is always a greater need to help others understand how the organization can best serve
them. The same goes for product development. The most important thing to do is to keep
generating ideas and try to understand consumer needs so multiple solutions can be made.
The most feasible alternative strategy that is available for Cisco to explore would be investing
more into open innovation. This would essentially be an R&D cost but with a multi-pronged
approach. Cisco would be more open to external connections to help integrate different kinds of
products, processes and innovations all into one environment. Not only would that open new
doors for greater ideas, a lot can be gained in terms of internal operations. Alliances and
connections with academics, government labs, private consumers or even other corporations
would bring pooled resources, shared know-how, economies of scale, coordinated strategies, etc.
Basically, open innovation could be what Cisco needs to create a whole new market. Corporate
scenarios can be developed as long as there are checks and balances that coordinate milestones.
For every organizational function, there are separate strategies with separate objectives.
Agreement is another matter that needs to be addressed through negotiation. Open innovation as
an alternative strategy is a win-win kind of situation so long as the operations do not result in
ambiguous pro forma balance sheets. A clear objective needs to be formulated in order for this to
work properly.
When it comes to business strategy, cost leadership is a significant advantage for industry
competition. Unfortunately, Cisco cannot focus on beating rival costs or it would lose a lot of
qualities that makes Cisco a better brand. As Cisco is beginning to look like an aging giant, cost
leadership and differentiation may seem increasingly more urgent due to a consolidated industry.
Older products sell more than newer technology in this kind of market when everything changes
so quickly. Cost leadership should be pursued when core products/services stay in the same
market for prolonged periods of time. However, Cisco is about innovative developments that
advance networking and communication on a global scale. Anytime new products are taking
over the market, Cisco needs to be the technological leader. Such a large company cannot afford
to be a follower nor can it risk competing in the same market without change for too long. Cost
leadership and differentiation should not be Cisco’s priorities for strategy because the main focus
should be entirely on fulfilling Cisco’s philosophical mission. The company’s mission is not
comparing itself to rivals; it is to shape the future of Internet. Cisco is out to be the leader.
Differentiation is a constant factor but, some customers are tired of paying extra for premium
services when they can fulfill their needs by means of doing business with other competitors.
Cisco needs to make up for this by providing unbeatable end-to-end solutions that continue to
create more value after the sale has concluded.
Some of the corporate strategies that need to be reexamined from time to time tend to have
greater impacts than business strategy. The biggest decisions are condensed into stabilization,
growth, and retrenchment. Cisco needs to appropriately adjust its corporate strategies every so
often. Global companies cannot afford to remain stagnate at any period of time. Idleness without
adapting to new changes undermines potential opportunities. Retrenchment is the least
recommended strategy at the moment because Cisco has a relatively enormous market share in a
consolidated industry. Pulling out of a competitive position when the pay-off does not help Cisco
enter new markets is unwise. Some of Cisco’s investments have poor returns and may not live
out to complete expectations but, the company is large enough to handle a few small losses
considering the synergistic qualities of Cisco’s acquisition strategy. It goes without saying that
assets which do not contribute to any benefit should be sold or discontinued.
Much of Cisco’s core products and services are not as profitable as they used to be, but they still
contribute to most of the company sales. Stabilization has paid off considering how last year
brought a new record in sales revenue. With an explosion in new innovative products that are
reshaping the market, Cisco has to be careful in what direction the company will go with. A lot
has changed with the rise of the Internet in the past 15 years but, the next five years will bring
unprecedented change relatively quickly. Cisco’s operational activities have been in the right
path to help find customer solutions. The difficult task is maintaining a long-term vision with one
very important concept in mind; Moore’s law. Cisco’s long-term targets for R&D cannot deviate
as social and technological change continues to evolve. The past few years were very important
as Cisco took a pause/proceed-with-caution strategy. We are still at the beginning of a new stage
of Internet technologies in which more devices and daily activities are being linked or integrated
to networks. This has given Cisco an opportunity to observe environmental situation changes and
possibilities for improving networking infrastructure.
The most exciting and dynamic strategy is growth. An effective company is always improving.
Given the nature of a technological-based industry, Cisco has a lot to look forward to. Growth
requires an expansion of activities, all of which can become increasingly complicated with large
corporations. Cisco needs to be careful and balance any “fine-tuning” of its strategies to ensure
all resources are properly aligned to ensure objectives and values are being met. What needs to
be concentrated on is how Cisco is going to influence the way we integrate technological devices
into networks.
Current functions are sufficient to accommodate increases in activity so long as there are
resources and adaption to support any changes. There are always improvements to be made but
additional functional strategies to reinforce business strategies may not be needed. Human
resources are a significant corporate strategic function for Cisco because there are so many
separate divisions with different strategies. HRM needs to make sure the company as a whole is
operating to optimize synergy. That responsibility requires an amount of unconventional or
improvised work to create efficient work environments, hire the right people for the right jobs,
and smooth out any complexities that arise between business functions.
An investment in improving logistics would be one reinforcement to help Cisco’s alternative
corporate strategies. Between the many different SBU’s and Cisco’s numerous acquisitions, it is
no wonder that Cisco has issues with its supply chain. Whether improvement involves
developing alternative solutions or contracting another company, logistical synergy across
strategic business units will show both immediate and long-term improvements. Such
improvements will reduce costs and help resources, products, and processes flow well.
Recommended Strategy
Specify which of the strategic alternatives you are recommending for the corporate, business,
and functional levels of the corporation.
•
Corporate strategy recommendation.
◦
stabilization for core products/services
◦
growth for developing products/services (“cloud strategy”)
•
Business: differentiation (technological leadership over cost leadership. just made that up
but hopefully it comes out great in words.)
•
functional: R&D (open innovation)
◦
Focus strategy. Combination of all functional strategies to accomplish a strategic
target. Cisco’s primary target is the future and the integration of Internet in our
lives to make networking communication and online resources available to its
fullest potential.
◦
Recommend strong coordination of R&D with product development. This
requires efficient HRM, structured organization, and marketing. It is also
paramount Cisco does not lose track of its mission values such as committing to
creating unprecedented value for employees, customers, and investors.
Do you recommend different business or functional strategies for different units of the
corporation?
•
(Yes) every business function requires a different strategy to accommodate different
needs. An organization needs to align all of its resources collectively to obtain the end
objective and produce results.
What policies should be developed or revised to guide effective implementation?
•
•
Self-managing work teams … degree of empowerment to help generate ideas/optimize
work environment.
open innovation (R&D)
Implementation
Cisco is currently a very strong strategic firm. They have functional strategies in place and many
of those do not need to be changed but improved. Our recommended strategy for Cisco is not
changing their day to day operations nor does it counteract their culture or mission and
objectives. Cisco has a very strong corporate culture and is leading the way in organizational
structure. They exhibit a cellular/modular organizational structure consisting of strategic
business units (SBU’s) that follow the company mission and objectives yet are able to carry out
their own objectives. By creating an independent yet interdependent system, these SBU’s can
innovate more quickly and the corporation as a whole benefits. This structure is what allows
Cisco to remain a top competitor in the industry, and it is a large part of why they do not need to
overhaul their objectives.
At this point, Cisco simply needs to fine tune the objectives for their core product/service SBU’s
(stabilization) and in the upcoming years focus more on R&D (growth). The stabilization
strategy for the core SBU’s will be streamlining operations in order to increase customer value
and decrease company costs. Cisco already has a very effective system in place so for those areas
it is all about continual improvement. The main area Cisco will focus on is R&D of its cloud
computing technology. The cloud is the way technology in the industry is heading, and in order
for Cisco to remain relevant they must capitalize on this opportunity to be the first provider of
cloud technology. The problems of this new technology involve security, thus objectives will
focus on researching ways to make the cloud secure. Cisco R&D will collaborate with partners,
and if need be, acquire or form new alliances with firms to gain valuable components,
technologies or insight on cloud computing.
CEO John Chambers and his executive team will develop the program for developing cloud
technology. Since the project is in the works currently, Chambers and his team will need to
design objectives for stages of development. We have already seen the beginnings of cloud
computing in the consumer market via the Microsoft Windows operating system, but it is still
early in the race. With proper goals set for R&D Cisco can become the leader in cloud
technology and gain large market share in that area. Objectives to be set for this year should
include improving security and functionality of cloud technology. After the executive team
meets, these objectives must be communicated to management in cloud technology R&D sectors
along with a feasible time frame for progress. These managers will be held accountable for
progress within their units and report with quarterly summaries for upper management.
Cisco can definitely form feasible pro forma budgets for this strategy. Since reallocating
resources may or may not need to be done Cisco should budget for R&D as usual, but focus on
the SBU’s that are associated with cloud computing first. After allocating resources to the cloud,
then budget in the other R&D sectors.
No new standard operating procedures will need to be developed until cloud computing is highly
secure. Once this happens a new strategy will need to be formed to market and produce this new
technology.
Evaluation and Control
Cisco focuses on performance of its strategy by units such as switching, modular, routing,
advanced technologies, other products, and other services. It closely follows how each unit
performed against the strategic measures. It also analyzes performance according to market
segments which are enterprise, public sector, service provider, commercial and consumer. Lastly,
it evaluates global performance by evaluating its output with its global strategy measures for
each country ranging from Japan to Australia.
Cisco has a tight corporate strategy evaluation system that keeps a close eye on each unit’s
strategic performance. In addition it has information systems in place that keeps track of the
performances which are reported on a timely basis to management which is in turn evaluated.
It is not benchmarking any companies in their industry mainly because there are few competitors
that have as big of a market share as they do but they are benchmarking other companies that
heavily engage in acquisition and merger such as Microsoft and Apple. They are especially
engaged in process and functional benchmarking respectively. Process benchmarking is
investigating a particular business practice of a company and usually involves activity analysis.
Cisco focuses on process benchmarking Microsoft’s mergers and acquisition strategy, especially
how regarding the valuation of mergers. Process benchmarking is investigating a particular
business practice of a company and usually involves activity analysis. Cisco focuses on process
benchmarking Microsoft’s mergers and acquisition strategy, especially how regarding the
valuation of mergers. It focuses on the mergers and acquisition strategy of Microsoft. Functional
benchmarking is focusing on a single function to improve its operation. Cisco’s single biggest
problem in the previous year was massive back orders that resulted from its ineffective supply
chain system. Backorder logs grew up to more than 6 months which resulted in losses of
business to competitors. In order to address this issue, it is benchmarking Apple’s supply chain
management to improve its own supply chain.
It effectively measures its strategic performance. It uses accurate measures for each strategic
objective. For instance, for its corporate strategy for China which includes a multi-year
innovation and sustainability initiative that focuses on research and development, education, and
procurement with measures such as peer review, customer evaluation, and performance measure.
Many companies that engage in R&D use number of patents for a measure of its performance.
This approach, however, does not take into account the quality of the patents and its timeliness
usually lags around 5 years, thus is an ineffective method. Instead Cisco uses the above
mentioned qualitative measures. It established a peer review group that assesses scientific quality
for the program, state of the facilities and equipment, and worker performance. Customer
evaluation involves getting feedback from shareholders. Performance measures include
procurement cycle time, patents received, and workforce diversity. Likewise, it is using more
practical and qualitative measures instead of impractical outdated measures.
It uses a balance of recognition and reward to attract and retain employees. It cuts the lowest
performing 5-7% every year. It is communicated up front to employees at the time of hiring so
they know what the expectations are from the very beginning making it a transparent process. It
genuinely wants talented workers and tries to narrow the gap between the top and bottom tier
workers while trying to attract new talented employees. They evaluate employees based on
collaboration, leadership, execution, action, and disruption. Twice a year, leaders get together to
discuss high and low performers. Portion of salaries are determined by performance and the
highest achievers are granted financial awards. In addition, recognition by peers is increasingly
getting valued and it is becoming an ongoing priority for the company to do so.
It needs to shift its focus from product development to customer satisfaction. While it puts great
emphasis and resources in R&D and toward developing its products, it does not focus enough on
its delivery and customer perceptions. It should put additional strategic focus on addressing poor
customer satisfaction issues by having customer service training programs and assessments.
Furthermore, while it has had success in the past in coming up with innovative products that
have been largely successful, it has lost its touch and has not come up with a hit product lately. It
needs to redevelop its strategy in understanding customer demand and ideas for new products
and needs to regain the touch that has made them the leader in the time business model.
Appendix
IFAS Figure
Internal Factor
Weight
Rating
Weighted
Score
Comments
Marketing
0.20
4.5
0.9
Sales force
Corporate Culture
0.10
3.8
0.38
Values of employees and
living the mission
Integrated Solution
0.15
4.0
0.6
R&D
0.15
4.6
0.69
Continued innovation
Weaknesses
Market Share
0.05
3.5
0.175
Differentiate to succeed
R&D Dependence
0.10
1.0
0.10
Cost of R&D is high
Distribution
0.15
2.0
0.30
Product Compatibility
0.10
3.2
0.32
Total
1.00
26.6
3.465
Strengths
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